GOLD PRICE REBOUNDS FROM KEY PRICE ZONE AS FED DEPLOYS CREDIT FACILITY – The price of gold may extend the rebound from the monthly low ($1451) as the Federal Reserve establishes a Primary Dealer Credit Facility (PDCF), with the operations to “offer overnight and term funding with maturities up to 90 days.”
The announcement comes as the 3-month US Dollar LIBOR rate jumped 16.25bp to mark the biggest rise since 2008, and the Federal Open Market Committee (FOMC) may continue to respond to the coronavirus as the PDCF will be “in place for at least six months and may be extended as conditions warrant.”
The efforts by the FOMC and its counterparts should help to cushion the world economy from the shock to the global supply chain, and it seems as though major central banks will deploy unconventional tools to fight the outbreak as the Reserve Bank of Australia (RBA) “stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market.”
It remains to be seen if the rate easing cycle will produce unintended consequences as the RBA warns that “a further reduction in interest rates could encourage additional borrowing at a time when there was already a strong upswing in the housing market,” but the price of gold may continue to benefit from the low interest environment as market participants look for an alternative to fiat-currencies.
